29.06.2018 — EU and US Expand Sanctions Against Russia

The European Union and the United States decided to expand further the sanctions imposed on Russia in connection with the incorporation of the Crimea into the Russian territory. The Council of the European Union prolonged the term of the restrictions imposed on the Crimea and Sevastopol for another year (until 23 June 2019). At the same time, the US decided to extend sanctions to a number of new individuals and companies, by renewing sanctions lists.

The Council of the European Union extended sanctions against the Crimea and Sevastopol until 23 June 2019 (see the official press release of the EU Council). The restrictive measures prohibit European citizens and companies to import goods produced in Crimea, invest in the Crimea’s economy, to export certain goods and technologies in the fields of transport, telecommunications and energy, etc. The term of the European sanctions was to expire on 23 June this year, but was prolonged for another year.

At the same time, the US continues to expand sanctions against Russian companies and individuals within the framework of the Countering America’s Adversaries Through Sanctions Act: an updated list was published on the website of the US Treasury on June 11. In the new list there were 3 more Russian individuals, 3 Russian companies and 2 structures based abroad. Their assets in the US will be frozen, and US residents will be restricted in doing business with them.

28.06.2018 — Supreme Court Ruled Against Double Recovery of Remuneration for Works from Customer In Bankruptcy Proceedings In Respect of Contractor, Although Assignment Was Invalid

In this dispute that arose within the framework of an insolvency case, the contractor’s bankruptcy manager filed a claim for the recovery of payment for the works performed under the contract from the customer. Previously, the respective receivables under the contract had been assigned by the contractor to a third party, to which the customer paid the remuneration for the works in full. The Supreme Court sided with the customer and agreed with his arguments that since there is not any evidence of his bad faith in the performance of obligation to the new creditor, to which the contractor had assigned the receivables, the money cannot be recovered from him twice even if the assignment was declared invalid. Thus, in case of invalidity of the assignment, the money paid under it shall be recovered from the new creditor who received remuneration for the works under the contract from the customer.

In the case at hand (case No. A75-5718/2015), the contractor performed drilling works, and after the works were performed, he assigned the respective receivables to the third party. The contractor notified the customer of the assignment, and the customer made all payments to the new creditor. However, subsequently, a bankruptcy case was initiated against the contractor, and the bankruptcy manager of the contractor filed a claim to the court on the invalidation of the assignment contract and the application of the consequences of the invalidity of the transaction.

The courts declared the assignment invalid, still the opinions of the courts on what consequences of invalidation of the transaction shall be, were different. The court of the first instance and the appellate court ordered that it is the new creditor who shall return the money to the bankruptcy estate. However, the court of cassation ruled that the debt shall be considered as not repaid by the customer, in essence ordering the customer to pay the remuneration to the contractor. The case was finally resolved by the Supreme Court, which upheld the decisions of the court of the first instance and the appellate court. The Supreme Court Chamber for Economic Disputes explained that the fact that the bankruptcy case was initiated by the contractor is not in itself a sufficient evidence of bad faith of the customer who had no reasonable grounds to monitor the financial position of the contractor. Moreover, the judges paid attention to the fact that the bankruptcy manager has not proved that the customer was aware of the unsatisfactory structure of the contractor’s balance sheet, and the terms and conditions of the assignment agreement did not allow to declare that the payment to the new creditor by the customer was unfair.

27.06.2018 — FAS Prepared Bill On Antimonopoly Compliance

The Federal Antimonopoly Service has developed a bill that establishes the legislative framework for the introduction of a system for prevention of violations of antimonopoly legislation in companies and government agencies. At this stage antimonopoly compliance policies will be voluntary for companies, but those companies that introduce the antimonopoly compliance will have their fines for antimonopoly violations reduced by 1/8. The bill shall be submitted to the State Duma in September 2018.

The Federal Antimonopoly Service (FAS) has developed amendments to the Law on Protection of Competition, which establish the legislative framework for the introduction of antimonopoly compliance policies in state bodies and companies. According to representatives of the FAS, work on the bill has been completed, and it is planned to introduce it to the State Duma this September.

The draft law defines “antimonopoly compliance” as a combination of legal and organizational measures provided for by the company’s internal regulations and aimed at ensuring compliance with the requirements of the antimonopoly laws and prevention of antimonopoly violations. According to the FAS, many large companies have already implemented and now actively use policies for antimonopoly prevention measures, and therefore the market needs regulatory framework in this field, as well as additional legal incentives for their introduction and use.

Compliance policies will be voluntary for companies, still their introduction and use will qualify as a mitigating circumstance in case of antimonopoly violations, which will result in reduction of the respective fines by 1/8. According to the experts, this measure will stimulate the introduction of antimonopoly compliance not only in large companies, but also will incentivize other market participants to have such policies in place.

26.06.2018 — Government Introduces Ambitious Amendments To Land Code Regarding Types Of Permitted Use Of Land Plots

The Ministry of Economic Development has prepared a bill aimed at eliminating uncertainty regarding the types of permitted use of the land plots. It is proposed to introduce a new chapter to the Land Code, which will provide a definition and establish types of permitted use, as well as the rules for its change. In addition, the bill will resolve a number of other issues that currently cause problems in practice, in particular, the bill is aimed at limitation of opportunities of abuse in the course of changing the type of permitted use of land plots, regulation of the legal status of agricultural lands and land under infrastructure facilities, etc. Nowadays, the bill has been approved by the Government and introduced to the State Duma.

The Government has prepared a bill that suggests adding a new chapter to the Land Code on the types of permitted use of land plots (see official information on the website of the Government of the Russian Federation). Amendments provide definition of the term “permitted use of the land plot” and its types (main, subsidiary, conditionally permitted), as well as cases, in which it is permissible to deviate from the general rule on the use of land plots strictly in accordance with the documented type of permitted use.

An important innovation of the bill is the introduction of a prohibition for lessees and land users to change the type of permitted use of the leased land plot (except for the situation when they own real estate located on such land plots). In addition, the bill stipulates that in exceptional cases the title to the land plot may be terminated if the previously established type of permitted use does not comply with the general regulations for the use of the territory.

Moreover, the bill deliberates on a number of important issues regarding the use of agricultural lands: it introduces the legal possibility to construct residential buildings thereon (still, to prevent abuse of the right to erect constructions on agricultural lands it is forbidden to form separate land plots under these constructions and resell them), as well as the regional legislators’ right to regulate issues related to establishing and changing the type of permitted use of farmlands, and other issues.

Furthermore , it is proposed to establish a uniform approach to determining of the type of permitted use of the land plots located under infrastructure facilities (roads, railways, pipelines and power lines): the bill provides that their type of permitted use shall be established in the appropriate regulations for the use of the territory.

25.06.2018 — Supreme Court: In Case of Double Sale of Real Estate, Purchaser Can Recover His Losses Only From Last Seller

In one of the recent cases the Supreme Court examined whether the ultimate purchaser, who incurred losses from the double sale of real estate, can recover such losses not only from its counterparty under the sale contract, but also from the person who actually sold the property twice. The purchaser filed a court claim on the recovery of losses to the local authorities, which resold the land plot several times, but the courts of all three instances dismissed the claim, arguing that the purchaser shall recover the money paid for the land plot from the seller, from which he purchased the disputed land plot. Thus, this approach of the Supreme Court encourages the purchasers of real estate to conduct in-depth due diligence and identify the relevant risks in advance.

In this case (see Decision of the Supreme Court on the case 59-KG18-5), the local authorities sold the land plot to an individual. After that the disputed land plot was resold again several times. At some point it turned out that the disputed land plot was identical with another land plot with a different cadastral number that had been sold by the local authorities to another purchaser, and then also resold various times. One of the final purchasers filed a claim to invalidate the transactions with the other purchaser, and the courts declared that the local authorities’ actions on the sale of the disputed land plot to the second purchaser were illegal, thus all the chain of title transfers was invalidated, and the records on this land plot were eliminated from the property register. Thus, the final purchaser, which was divested of the land plot, filed the claim on the recovery of losses from the local authorities.

The Supreme Court Chamber for Civil Disputes ruled that the claim on the recovery of losses amounting to the sum paid by the purchaser to the seller can be brought only against the last seller, who was the purchaser’s direct counterparty in the sale and purchase contract. Given that the local authorities were not a party to the contract, the purchaser is entitled to recover the losses from the last seller only. Therefore the Supreme Court dismissed the claim filed against local authorities. This approach of the Supreme Court encourages the purchases of real estate to conduct in-depth due diligence of both the land plot and the seller before signing the sale and purchase contract.